Business Accounting
Study Guide Questions
Course Introduction
Business Accounting is an essential course that introduces students to the fundamental principles and practices used in financial and managerial accounting. The course covers the preparation, interpretation, and analysis of financial statements, accounting cycles, and various accounting systems. Students will learn about budgeting, cost analysis, internal controls, and ethical considerations in accounting. Emphasis is placed on the role of accounting in decision-making processes for businesses, enabling students to develop the skills necessary to manage financial information effectively and support organizational goals.
Recommended Textbook
Horngrens Financial and Managerial Accounting 6th Edition by Tracie L. Nobles
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Page 2
Chapter 1: Accounting and the Business Environment
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Sample Questions
Q1) The field of accounting that focuses on providing information for external decision makers is ________.
A)managerial accounting
B)financial accounting
C)cost accounting
D)nonmonetary accounting
Answer: B
Q2) Adams Service Company had a net income of $14,500 for the year ending December 31,2018.The total assets on January 1,2018 were $28,000.The total assets on December 31,2018 were $16,000.
Calculate Adam's return on assets (ROA).Show your computations and label your work.Round your answer to two decimal places.
Answer: Return on Assets = Net Income / Average total assets
Average total assets = (Beginning total assets + Ending total assets)/ 2 11ea86ed_2d16_044d_8b27_61e3c803ed7b_TB3056_00
Q3) Assets are economic resources that have no future benefits for the business.
A)True
B)False
Answer: False
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Page 3
Chapter 2: Recording Business Transactions
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Sample Questions
Q1) The T-account is a summary device that is shaped like a capital T with debits posted on the left side of the vertical line and credits posted on the right side of the vertical line.
A)True
B)False
Answer: True
Q2) The first step in the journalizing and posting process is to ________.
A)post the journal entry to the ledger
B)identify the accounts involved and the account type
C)decide whether each account increases or decreases
D)record the transaction in the journal
Answer: B
Q3) A business pays $800 cash for office supplies.Which of the following accounts is credited?
A)Cash
B)Accounts Payable
C)Office Supplies
D)Office Supplies Expense
Answer: A
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4
Chapter 3: The Adjusting Process
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Sample Questions
Q1) An adjusting entry that credits Salaries Payable is an example of a(n)________.
A)accrued expense
B)deferred revenue
C)accrued revenue
D)deferred expense
Answer: A
Q2) The accountant for Eagle Financial Services,Inc.failed to make an adjusting entry to record $3,000 of telephone expenses for the last two months of the year.Which of the following statements is true?
A)The total liabilities will be overstated.
B)The total liabilities will be understated.
C)The total assets will be overstated.
D)The total assets will be understated.
Answer: B
Q3) A contra account's normal balance is the opposite of the normal balance of the related account.
A)True
B)False
Answer: True
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Page 5
Chapter 4: Completing the Accounting Cycle
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Sample Questions
Q1) Under which of the following categories would Accounts Receivable appear?
A)current assets
B)current liabilities
C)long-term assets
D)long-term liabilities
Q2) In which of the columns of a worksheet would a net loss be found?
A)in the balance sheet credit column and the income statement debit column
B)in the balance sheet debit column and the income statement credit column
C)in the unadjusted trial balance credit column,the adjusted trial balance credit column,and the balance sheet credit column
D)in the unadjusted trial balance debit column,the adjusted trial balance debit column,and the balance sheet debit column
Q3) If a business has a net loss,the Income Summary T account would hold a debit balance before the account is closed.
A)True
B)False
Q4) The post-closing trial balance shows the updated Retained Earnings balance.
A)True
B)False
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Chapter 5: Merchandising Operations
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Sample Questions
Q1) Sales Revenue is recorded net of sales discounts,so it is labeled Net Sales Revenue on the income statement.
A)True
B)False
Q2) The term "freight out" refers to ________.
A)transportation costs on purchases
B)cost of inventory purchased
C)costs that are not actually paid in cash
D)transportation costs on sales
Q3) In a periodic inventory system,accounting for sales discounts is the same as in a perpetual inventory system,except there is no entry for merchandise inventory.
A)True
B)False
Q4) A company ships goods to a customer and pays transportation costs.To the seller,the transportation costs are ________.
A)freight out
B)freight in
C)sales commission
D)brokerage
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Chapter 6: Merchandise Inventory
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Sample Questions
Q1) In computing the lower-of-cost-or-market,market value generally means the selling price.
A)True
B)False
Q2) Better Deals,Inc.has 6 units in inventory on December 31.The units were purchased in November for $165 each.The price lists from the suppliers indicate that the same items would now cost the company a total of $1,020.What would be the amount reported as ending Merchandise Inventory on the balance sheet?
A)$2,010
B)$335
C)$990
D)$1,020
Q3) Inventory turnover measures the number of times a company sells its average level of merchandise inventory during a period.
A)True
B)False
Q4) The lower-of-cost-or-market rule demonstrates accounting conservatism in action.
A)True
B)False
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Chapter 7: Internal Control and Cash
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Sample Questions
Q1) The difference that arises between the balance on the bank statement and the balance on the company's books because of a time lag in recording transactions is known as a permanent difference.
A)True
B)False
Q2) A check was written by a business for $549 but was recorded erroneously in the Cash account as $459.How would this error be included on the bank reconciliation?
A)an addition on the book side
B)a deduction on the bank side
C)a deduction on the book side
D)an addition on the bank side
Q3) The two common methods of processing credit and debit card transactions are gross and net.
A)True
B)False
Q4) Journal entries are required if the bank reconciliation includes outstanding checks.
A)True
B)False
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Chapter 8: Receivables
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Sample Questions
Q1) During July 2019,Midtown Catering recorded the following:
Catering services of $86,400 were provided ($64,500 on account,$21,900 for cash)
Collections on account,$58,950
Write-offs of uncollectible receivables,$2,560
Recovery of receivable previously written off,$1,000
Journalize Midtown's transactions during July,assuming Midtown uses the allowance method.Omit explanations.
Q2) Credit department employees must have access to cash in order to exercise effective internal control over receivables.
A)True B)False
Q3) When a business factors its receivables,the factor collects cash on the receivables. A)True B)False
Q4) The Allowance for Bad Debts is a contra account to Accounts Receivable. A)True B)False
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10
Chapter 9: Plant Assets, natural Resources, and Intangibles
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Sample Questions
Q1) Which of the following should be included in the cost of land?
A)cost to build sidewalks on the land
B)cost to clear the land of old buildings
C)cost of installing signage
D)cost of installing fences
Q2) Plant assets are long-lived,tangible assets used in the operation of a business.
A)True
B)False
Q3) Which of the following statements is incorrect?
A)The life cycle of a plant asset includes: acquisition,usage,and disposal.
B)Depreciation is recorded on all plant assets.
C)Plant assets not currently being used in business operations are classified as long-term investments.
D)Plant assets are long-lived tangible assets used in the operations of a business.
Q4) Depreciation is the allocation of a plant asset's cost to expense over its useful life. A)True B)False
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Chapter 10: Investments
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Sample Questions
Q1) World-wide Financial Services,Inc.invested $27,000 to acquire 4000 shares of Dawn Investments,Inc.on March 15,2016.This investment represents less than 20% of the investee's voting stock.On May 7,2019,World-wide Financial Services,Inc.sells 2500 shares for $14,250.In the accounting equation on May 7,2019,________.
A)total assets will remain unchanged
B)total assets will increase
C)total liabilities will decrease
D)total equity will decrease
Q2) When a trading debt investment is disposed of,________.
A)an unrealized holding loss is reported on the income statement
B)the Trading Debt Investments account is debited
C)the amount of gain or loss is calculated as the difference between the cash received and the cost of the debt investment disposed of
D)the fair value adjustment is used in determining the calculation of the gain or loss
Q3) The owner of a bond or stock of a corporation is referred to as the investor.
A)True
B)False
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Page 12
Chapter 11: Current Liabilities and Payroll
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Sample Questions
Q1) Restaurant Foods Corp.had cash sales of $598,000 during the month of August.Sales taxes of 6.5% were collected on the sales.Prepare the journal entry to record the sales revenue and sales tax for the month.Omit explanation.
Q2) Andrew,an employee of Super Retailer,Inc. ,has gross salary for March of $5,500.The entire amount is under the OASDI limit of $118,500 and thus subject to FICA.The total amount of employee FICA tax is $841.50.(Assume a FICA-OASDI Tax of 6.2% and FICA-Medicare Tax of 1.45%. )
A)True
B)False
Q3) FICA tax is a tax that is paid both by the employer and the employee.
A)True
B)False
Q4) A ________ is a schedule that summarizes the earnings,withholdings,and net pay for each employee.
A)payroll register
B)bin card
C)cash ledger
D)bank reconciliation statement
Q5) What is a contingent liability? Provide two examples of contingencies.
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Chapter 12: Long-Term Liabilities
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Sample Questions
Q1) On January 1,2018,Allgood Company purchased equipment and signed a six-year mortgage note for $186,000 at 15%.The note will be paid in equal annual installments of $49,148,beginning January 1,2019.Calculate the portion of interest expense paid on the third installment.(Round your answer to the nearest whole number. )
A)$49,148
B)$21,048
C)$27,900
D)$164,752
Q2) The process for calculating present values is often called present valuing cash flows.
A)True
B)False
Q3) If bonds with a face value of $204,000 are issued at par,the amount of cash proceeds is ________.
A)$203,890
B)$204,000
C)$224,400
D)$244,800
Q4) When computing the present value of a bond,which interest rate is used? Why?
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Chapter 13: Stockholders Equity
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Sample Questions
Q1) Gains and losses on the sale of plant assets are reported as discontinued operations.
A)True
B)False
Q2) The purchase of treasury stock ________.
A)decreases assets and stockholders' equity
B)increases assets and stockholders' equity
C)increases assets and decreases stockholders' equity
D)decreases assets and increases stockholders' equity
Q3) A company may purchase treasury stock to increase net assets by buying high and selling low.
A)True
B)False
Q4) Double taxation occurs when corporations make dividend payments to stockholders.
A)True
B)False
Q5) A 3-for-1 stock split of a $3 par value share will result in three shares of $1 par value being issued for each share of $3 par value stock.
A)True
B)False
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Chapter 14: The Statement of Cash Flows
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Sample Questions
Q1) New York Production Company uses the indirect method to prepare its statement of cash flows.The Treasury Stock account had a debit balance of $11,000 at the beginning of the year and a debit balance of $16,000 at the end of the year.No treasury stock was sold during the year.The financing section of the statement of cash flows will show a positive cash flow of $5,000 for the buyback of treasury stock.
A)True
B)False
Q2) The total change in cash for the period reconciles the statement of cash flows.
A)True
B)False
Q3) Investors and management use the statement of cash flows to evaluate a firm's profitability.
A)True
B)False
Q4) Using the direct method,interest expense paid on a note payable is included in the operating activities section of the statement of cash flows.
A)True
B)False
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Chapter 15: Financial Statement Analysis
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Sample Questions
Q1) A high current ratio indicates that current liabilities are greater than current assets.
A)True
B)False
Q2) In an audit report in the annual report,a qualified opinion states that the financial statements are presented fairly in all material respects.
A)True
B)False
Q3) Horizontal analysis provides a year-to-year comparison of a company's performance in different periods.
A)True
B)False
Q4) Horizontal analysis compares each item in the income statement to the net sales amount.
A)True
B)False
Q5) Grand Office Supply reported the following gross profit percentages: 2017: 37.5%;2018: 36.2%;2019: 20.8%.The industry average is 35%.What are some possible reasons for the decline in 2019?
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Page 17
Chapter 16: Introduction to Managerial Accounting
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Sample
Questions
Q1) Noble,Inc.purchases each unit of product X for $100 and can sell it in the market for $135.The price of the product for Noble would be $100.
A)True
B)False
Q2) A company's president or chief executive officer (CEO)is selected by the stockholders.
A)True
B)False
Q3) Which of the following would be considered a product cost for a manufacturing company?
A)salary of the sales manager
B)salary of the CEO
C)salaries of the accounting staff
D)salary of the production manager
Q4) Which of the following is an example of direct labor cost in a factory?
A)wages of assembly line personnel
B)salary of vice president of production
C)wages of factory security guard
D)salary of production manager
Q5) Define indirect cost.
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Chapter 17: Job Order Costing
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Sample Questions
Q1) Process costing rather than job order costing is more appropriate for service companies.
A)True
B)False
Q2) Define a process costing system and list two types of businesses that would use a process costing system.
Q3) Seal Financial Advisors provides accounting and finance assistance to customers in the retail business.Seal has four professionals on staff and an office with six clerical staff.Total compensation,including benefits,for the professional staff runs about $573,000 per year,and normal billable hours are 8300 hours per year.The professional staff keep detailed time sheets organized by client number.The total office and administrative costs for the year are $755,000.Seal allocates office and administrative costs to clients monthly,using a predetermined overhead allocation rate based on billable hours.What is the predetermined overhead allocation rate that Seal will use for office and administrative costs? (Round your answer to the nearest cent. )
A)$90.96 per hour
B)$21.93 per hour
C)$69.04 per hour
D)$160.00 per hour
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Page 19
Chapter 18: Process Costing
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Sample Questions
Q1) When indirect materials are used in production,the Manufacturing Overhead account is credited.Process costing is used.
A)True
B)False
Q2) How is a production cost report prepared using the FIFO method?
Q3) The production cost report for Department 1 shows that $154,000 was assigned to the 36,000 units transferred to Department 2.This transfer cost assigned to units transferred to Department 2 is recorded with a debit to Work-in-Process-Department 2.Process costing is used.
A)True
B)False
Q4) A characteristic of products that are produced in a series of steps or processes is that
A)their costs are accumulated on a job cost record.
B)they are homogeneous and made in large quantities.
C)their costs are transferred to Finished Goods Inventory as jobs are completed.
D)their costs are accounted for in one Work-in-Process Inventory account.
Q5) What are conversion costs? In determining equivalent units of production,why are conversion costs calculated separately from direct materials?
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Chapter 19: Cost Management Systems:
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Sample Questions
Q1) Activity-based management is not suitable for service companies as it deals with the proper allocation of manufacturing overhead costs.
A)True
B)False
Q2) Companies using just-in-time management systems are far more vulnerable to production shutdowns if they receive poor-quality or defective raw materials.
A)True
B)False
Q3) Just-in-time costing systems use three inventory accounts: Raw Materials Inventory,Work-in-Process Inventory and Finished Goods Inventory.
A)True
B)False
Q4) Activity-based costing focuses on a single predetermined overhead rate for cost analysis.
A)True
B)False
Q5) Define target cost.How is target cost determined?
Page 21
Q6) List and briefly describe the four types of quality-related costs.
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Chapter 20: Cost-Volume-Profit Analysis
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Sample Questions
Q1) Fixed costs divided by contribution margin per unit equals the breakeven point in unit sales.
A)True
B)False
Q2) Avia Company sells a product for $150 per unit.Variable costs are $70 per unit,and fixed costs are $1200 per month.The company expects to sell 640 units in September.The unit contribution margin is ________.
A)$80 per unit
B)$70 per unit
C)$220 per unit
D)$150 per unit
Q3) Variable cost per unit,within the relevant range,will ________.
A)increase as production decreases
B)decrease as production decreases
C)remain the same as production levels change
D)decrease as production increases
Q4) Contribution margin is the amount that contributes to covering variable costs.
A)True
B)False
Q5) How is the contribution margin ratio calculated?
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Chapter 21: Variable Costing
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Q1) Which of the following statements is true of absorption and variable costing methods?
A)Both costing methods consider selling and administrative costs to be period costs.
B)Variable costing considers variable selling and administrative costs to be product costs.
C)Absorption costing considers fixed manufacturing overhead to be period costs.
D)Both costing methods consider fixed manufacturing overhead to be product costs.
Q2) Contribution margin is calculated by deducting the total cost of goods sold from sales revenue.
A)True
B)False
Q3) Absorption costing considers direct materials,direct labor,variable manufacturing overhead,and fixed manufacturing overhead as product costs.
A)True
B)False
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Chapter 22: Master Budgets
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Sample Questions
Q1) Developing a budget reduces coordination and communication at different levels in an organization.
A)True
B)False
Q2) The capital expenditures budget is completed before the preparation of the cash budget.
A)True B)False
Q3) When preparing the operating budgets for a manufacturing company,the manufacturing overhead budget ________.
A)represents the last period cost to be considered
B)only includes variable manufacturing overhead
C)only computes the budgeted overhead cost for the year
D)includes costs that are projected by the cost accountant and the production manager
Q4) The manufacturing overhead budget calculates the budgeted overhead cost for the year and also the predetermined overhead allocation rate for the year.
A)True B)False
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Chapter 23: Flexible Budgets and Standard Cost Systems
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Q1) The purchasing manager was able to bring down the cost of direct materials by purchasing direct materials of a slightly lower grade quality than the company had used previously.The lower grade of direct materials,however,meant a higher defect rate on the assembly line and a higher waste of direct materials during production,which in turn lowered operating income.This would have led to a(n)________.
A)unfavorable direct materials cost variance
B)favorable direct labor cost variance
C)favorable direct labor efficiency variance
D)unfavorable direct materials efficiency variance
Q2) Benefit Pillow Company projected sales of 75,000 units for the year at a unit sales price of $14.00.Actual sales for the year were 70,000 units at $19.00 per unit.Variable costs were budgeted at $4.00 per unit,and the actual variable cost was $4.90 per unit.Budgeted fixed costs totaled $377,000 while actual fixed costs amounted to $410,000.What is the flexible budget variance for operating income?
A)$323,000 unfavorable
B)$254,000 favorable
C)$254,000 unfavorable
D)$287,000 favorable
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Chapter 24: Responsibility Accounting and Performance Evaluation
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Q1) Which of the following is a NOT a decision that management must make before calculating ROI and RI?
A)Should nonproductive assets be included in the average total asset calculation?
B)Should gross book value or net book value of assets be used?
C)Should a simple average of the beginning and ending total liabilities be used?
D)Should a short term focus be used?
Q2) A company's "climate for action" is a corporate culture ________.
A)that encourages communication,change,and growth
B)that is focused on strong,top-down command and control
C)that is aimed exclusively at period earnings
D)that discourages physical activity,sports,and recreation to improve employee health and morale
Q3) Both the sales volume variance and the flexible budget variance help revenue center managers understand why they have exceeded or fallen short of budgeted revenue.
A)True
B)False
Q4) List the primary goals of performance evaluation systems.
Q5) Explain the difference between a controllable and a noncontrollable cost.
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Chapter 25: Short-Term Business Decisions
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Q1) Viper Avionics makes aircraft instrumentation.Its basic navigation radio requires $90 in variable costs and $4000 per month in fixed costs.Further processing the radio,to enhance its functionality,will require an additional $27 per unit of variable costs,plus an increase in fixed costs of $280 per month.The marketing manager believes that they would be able to increase the sales price of the radio from $280 to $300.Viper sells 40 radios per month.If Viper decides to further process the radio,monthly operating income would ________.
A)increase by $800
B)increase by $4960
C)decrease by $560
D)decrease by $4960
Q2) Fixed costs are relevant to a special pricing decision if they are subject to change as a result of the special order.
A)True
B)False
Q3) Define joint cost.Should joint costs be considered in the decision to sell or further process the product? Explain your answer.
Q4) Identify the four steps in the decision-making process.
Q5) Explain the difference between price-takers and price-setters.
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Chapter 26: Capital Investment Decisions
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Sample Questions
Q1) The discount rate used in a net present value analysis is the ________.
A)rate of inflation
B)rate of interest earned on a savings account
C)required rate of return or the hurdle rate
D)rate of interest charged for debt financing of an investment
Q2) You have just won the lottery and have three payout options:
1.$1,000,000 now
2.$150,000 at the end of each year for the next ten years
3.$2,000,000 at the end of ten years.
What is a common basis for comparison that you can use to decide which option to choose? Explain your answer.
Q3) The residual value is discounted as a single lump sum because it will be received only once,when the asset is sold.
A)True
B)False
Q4) The payback and accounting rate of return (ARR)methods are suitable for investments with a relatively short time span.
A)True
B)False
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Chapter 27: Accounting Information Systems
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Sample Questions
Q1) A subsidiary ledger is a record of accounts that provides supporting details on individual balances,the total of which appears in a general ledger account.
A)True
B)False
Q2) California Corporation sold a product for $7,150 to Alliance Enterprises on credit.The cost of goods sold is $5,650.Assuming the firm is following a perpetual inventory system and using a sales journal,it will record $5,650 in the ________.
A)Accounts Receivable DR,Sales Revenue CR column
B)Cost of Goods Sold DR,Merchandise Inventory CR column
C)Merchandise Inventory DR,Cost of Goods Sold CR column
D)Sales Revenue DR,Accounts Receivable CR column
Q3) Adjusting entries are recorded in the ________.
A)cash payments journal
B)purchases journal
C)cash receipts journal
D)general journal
Q4) Define enterprise resource planning (ERP)systems and state one advantage and one disadvantage of ERP systems.
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